Which of the following changes would tend to increase the company cost of capital for a traditional firm?

Question

Quizplus · Accepted Answer

Decreasing the proportion of debt financing would decrease the financial risk and increase the creditworthiness of the firm, which would ultimately lead to a decrease in the cost of capital. Therefore, the opposite action of decreasing the proportion of equity financing would increase the cost of capital. Increasing the market value of debt may have a minimal effect as it only affects the debt portion of the capital structure. Similarly, decreasing the market value of equity would also have a minimal effect.

Which of the Following Changes Would Tend to Increase the Company